Fracking, the Great American Oil and Gas Comeback and Its Effect on Risk Managers in the Energy Space

Fracking_blog

In recent years, the United States has dramatically changed the global oil and gas energy landscape. According to the U.S. Energy Information Administration:

  • Since 2010, Oil production in Texas has tripled
  • In 2012, the U.S became the world’s largest natural gas producer
  • In 2013, the U.S. became the leading oil-producing country in the world, surpassing Saudi Arabia and Russia
  • U.S. oil exports are set to hit an all-time high in 2017, and it is projected that the U.S. will become the largest exporter of Liquefied Natural Gas (LNG) by 2022

This great American oil and gas comeback has been primarily driven by fracking. The U.S. fracking success has created a worldwide oversupply of energy and, therefore, has dramatically affected the energy markets, reducing the price of oil from over $100 a barrel to less than $50 a barrel in 2014.

As a result of lower energy prices, numerous U.S. energy companies have become financially challenged.  Forecasters predict that lower energy prices are here to stay for the foreseeable future.  U.S. energy companies have become increasingly innovative and efficient at reducing costs to improve their bottom line, stay competitive, and increase shareholder value.  Risk managers are being asked to do their fair share to improve the bottom line by being creative in reducing their cost of risk.

Many North American oil and gas risk managers have taken additional control of their primary casualty insurance program with the unbundling of claims (hiring a third party claims administrator), increasing loss control efforts, and retaining additional risk on their primary casualty insurance program, thereby allowing their firms to reap the benefits of better claims experience.  These risk managers understand that by taking increased reasonable retentions they can still retain meaningful balance sheet protection, have predictable insurance costs, and avoid trading dollars with the insurance company for predictable claims.

With the understanding that global energy markets are cyclical, complex, and ever-evolving, it is critically important for these operations to create and develop partnerships that are sustainable and able to evolve.  Risk managers in the oil and gas industry know Old Republic will be a reliable participant in this primary casualty market.

Rob Fronk, Vice President, Account Executive

Rob Fronk is a Vice President, Account Executive with Old Republic Risk Management. He is responsible for leading the relationship with clients and brokers by marketing and underwriting casualty insurance programs for large corporations and group captives in the risk management marketplace. Rob assists ORRM's efforts in the Southwest.